Golden Age for Pump and Dumps

Don't take these markets for granted.  Retail investors won't be staying around at this kind of volume forever.  Back when I was trading in 1999, I thought those kind of crazy markets would stay around for longer than it actually did.  By late 2000, most of the crazy moves in individual stocks was gone, as retail investors were getting pummeled in their tech stocks and risk appetite dropped off a cliff.  

Back in the old days, only the crappiest of companies that couldn't easily get through the IPO process resorted to being bought out by SPACs.  Now, SPACs are all the rage, a quick way to raise money to buy private companies and take them public.  Of course, the ones who are upstream get the easy, almost risk free money, while the ones downstream, the retail investors and ordinary mutual funds absorb the risk of buying two bit companies at absurd valuations.  

After a long bull market, what was once avoided are now embraced.  Profitless companies going up on Wall Street hype are the hottest stocks.  TSLA in 2020 is the YHOO of 1999.  The internet stocks of 1999 are the EV stocks of 2020.  The big difference is that unlike in 1999, the insiders of these junk small cap companies weren't doing secondary offerings and filing huge shelf statements to dump as much stock as quickly as possible.  The float basically stayed the same and most of these companies didn't fully utilize the pumped up stock prices to raise a bunch of cash.  It made for some unbelievable short squeezes and momentum runs that didn't get hit with a bunch of company issued supply. These days, the insiders of these small caps have gotten wiser, and issue as much stock as they can into the higher prices and better liquidity that daytraders and momo traders provide.  

To name just a few companies that have issued tons of stock after retail traders pumped up their stock prices:  NNDM, KNDI, XPEV, SOLO, AYRO, IDEX, SRNE, IBIO, HTBX.  

All of these stock offerings after PR pumps or even chat room pumps just give the short side that much extra edge.  Especially for those holding swing and longer term positions.  The downside of holding short positions in these pump and dumps is that the short borrow interest rates are usually extremely high, anywhere from 50 to over 200% annualized.  A stock could go down 10% in a month and if the short borrow rate is 120%, the short position in the stock would just break even.  Back in 1999, there was no short borrow fee, so it was a great time to just hold long term short positions and ride down the pump and dump plays.  But with so many hedge funds shorting and clearing firms trying to profit off of their customers, these firms are charging some ridiculously high short borrow rates to just hold a short position in a lot of these junky names.  

 But it is these same hedge funds that are the willing buyers of discounted stock in these stock offerings that a lot of these pump and dump companies utilize to raise cash.  So there are pros and cons from having so many hedge funds out there.  

As for stock indices and bonds, its a tough game right now.  When the SPX grinds higher and makes new highs, its tough to chase and go long, but also usually not a great time to try to fade the trend because its not easy to short the tops.  And the tops usually last longer than the bottoms, so there is a smaller time window of profitability for short positions, even if you do get close to shorting the top.  Still have a small short SPX position, but not looking to get aggressive, and willing to take a 2% pullback and look to cover there.